Consumption and credit among the poor: assessing

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Consumption and credit among the poor assessing
parallel market features and behavior towards
cash-consumer credit among low income households
in UruguayCecilia RosselNovember 17th, 2014
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Consumer credit in LA

•  
• Consumer credit access has been growing in most
  of Latin American households for the last two
  decades
• Part of this process relates to the expansion of
  the banking system and credit cards, which
  derived in the financial inclusion of a growing
  middle class
• But the growth in consumer credit is also
  explained by the opportunity for accessing these
  type of credit that non-banking financial
  institutions (including cooperatives, retail
  stores, cash credit institutions) started
  providing for lower income and poor families

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Objectives

• Describe the consumer credit market and its
  significance in Uruguay, by focusing on the micro
  dynamics of access to consumer credit and
  consumer credit borrowing in low income families.
  
• Three descriptive questions
• (i) what are the main features of the formal and
  informal cash-consumer credit market in Uruguay
  and how does it work?
• (ii) what are the attitudes and practices of the
  poor population towards consumption and credit?
• (iii) what are the new risks and vulnerabilities
  if any- that emerge from taking credits through
  this market?.

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Methods data (i)

• Secondary information
• Mystery clients strategy
• Experts interviews
• In-depth interviews

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Main results

• A growing market with aggressive strategies to
  attract low income and poor clients, not always
  transparent, that seems to be achieving its goals
• A precarious access to financial products in
  financially excluded population
• A strong association of NBFI credit market with
  low income and poor population (with a monthly or
  weekly link in all cases!)
• A rational/self-limiting discourse but with high
  levels of multiborrowing and, in some cases,
  over-indebtedness
• Solidarity and networks as a by-pass to the
  obstacles imposed by the credit score-card and
  the debtor list
• Over-indebtedness as a stressful/trapping
  situation, that is coped or at least faced-
  through different strategies

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Policy implications challenges

• Regulation challenges regarding
• information provided to consumers
• practices of adding benefits
• reporting to governments authorities
• interest rates credit conditions
• Financial education to low income and poor
  families, including basic tips for understanding
  credit and guides for managing financial
  situation and avoid over-indebtedness